Article by
Barbados Today

Published on
December 20, 2012

Blaming the island’s “continuing lacklustre economic performance”, and “ongoing deterioration in the Government’s debt metrics”, Moody’s has downgraded Barbados’ credit rating to junk.
And it is warning the Freundel Stuart Administration that unless it took “significant corrective measures” to control debt, it risked pushing the economy back into recession.
Less than six month’s after another Standard & Poor’s, another influential credit rating agency based in the United States lowered Barbados’ rating below investment grade, Moody’s decision to reduce its foreign and local currency bond ratings from Baa3 to Ba1 with a negative outlook placed the country in similar “junk” territory.
News of the decision was announced late this evening in a statement released in New York.
Moody’s also warned that the rating could be reduced further unless Government “is able to successfully navigate the current situation such that a clearly visible and easily achievable path to stabilising debt metrics is established within the next 12 to 18 months, in which case the outlook could be revised to stable”.
“The rating could also be downgraded if pressures on the currency peg mount significantly,” the rating agency said. The investor service was concerned that Barbados’ growth prospects “remain very limited due to its deteriorating competitiveness and declining productivity coupled with heavy dependence on tourism, particularly from the United Kingdom and the United States”.
It also said Government’s limited “budgetary flexibility” meant its strategy of gradual fiscal consolidation “relies upon optimistic growth forecasts, very tight control over expenditures that will be difficult to achieve, and continued high inflation — which does not bode well for the country’s competitiveness”.
“While the worst appears to be behind Barbados both in terms of fiscal deficits and economic deterioration, Moody’s anticipates that the Government’s deficits will remain large for the next few years and its debt levels will continue to rise, albeit at a slowing pace,” the analysis said.
“Even if the country is able to consolidate its finances and stabilise its debt metrics, they are unlikely to improve meaningfully for the foreseeable future given its poor economic prospects. “Consequently, Barbados will have considerably less flexibility to respond to economic shocks in the future than it did in the past, particularly given its fixed exchange rate which significantly constrains the Government’s capacity to pursue a counter-cyclical monetary policy,” it added.
Moody’s said its negative outlook was based on its view that Barbados’ economic performance “is likely to remain weak; that it will be progressively more difficult for the Government to consolidate its finances given an increasingly rigid budget structure; and that debt metrics will continue to rise and financial flexibility to decline as a result”. (SC)